Interview Sen. Tom Harkin

Chairman [D-Iowa] of the U.S. Senate Committee on Health, Education, Labor & Pensions, Harkin is a critic of the education that for-profit colleges are offering today's veterans. Recently, he held hearings on their high costs, aggressive recruiting and heavy dependence on taxpayer-supported education funds. This is the edited transcript of an interview conducted on Jan. 26, 2011.

Back in June 2010, you announced plans to hold hearings on for-profit higher education schools. What's behind that decision?

We looked at the increasing amount of money going from the government loan program and the Pell Grant program to these for-profit schools. It just seemed to be a huge spike-up, and we were kind of wondering what was going on there.

“Private equity firms, hedge funds own these schools and are making a lot of profit and not really giving that much of a benefit to these students.”

Then we got reports from some students who had been at these for-profit schools and had contacted us about how they felt they'd been ripped off and they hadn't received what they thought they were receiving.

So one thing led to another, and that's why we started to investigate.

When did the issue of vets and for-profits come to your attention?

We started our investigation last year and started getting data. We found that there was a huge spike-up in the amount of military money going to these schools -- 600 percent increase in just a couple of years -- a huge increase. So we started looking at that, and what we found is just really disturbing.

You described it as a slap in the face. What did you mean?

Well, in Congress, we passed a bill to say that look, the GIs of today -- that's the veterans of Iraq and Afghanistan -- should get the same educational benefits as the GIs of World War II and the Korean War and Vietnam War. And we did that in good faith.

What we didn't count on was the for-profit schools then seeing this as a way of increasing their profits and maybe not providing the best educational benefits. There's private equity firms, there's hedge funds that own these schools, and they are making a lot of profit, and they're not really giving that much of a benefit to these students, and that's why I call it a slap in the face to our veterans.

Look, these veterans get this benefit one time; it's a one-time shot. And if they don't get a quality education that can really help them with their lives, they'll never get it again. But the hedge funds and the private equity firms that own these for-profit schools, they get the profits.

Why would a veteran or an active-duty serviceman or -woman sign up with a for-profit?

There are some benefits to being in the service and accessing distance learning. Even when I was in the military some 40 years ago, the University of Maryland had a great program -- still has a program -- providing distance learning to our troops.

At that time, it was all paper, and now they've moved into the electronic age. So this distance learning can be very helpful to a young person in the service who's stationed in Iraq or Afghanistan or anywhere.

You say that the for-profits, though, are taking advantage of this new money that's come free. Why have they been more successful in growing faster than their competitors in the nonprofits here?

They put more money into recruiting. For example, the for-profits spend upward of maybe 30 percent in just recruiting, in advertising. The nonprofits don't do that. They don't have that kind of access.

And the few for-profits that are in there are going after our GIs -- when I say GIs, I mean those on active duty and those who are now veterans and getting the VA [Veterans Administration] benefits -- both groups are being targeted by the for-profits with very aggressive advertising and targeting.

But there's a couple of reasons why these for-profit schools have targeted the military. Number one, a lot of the times [these students] don't have to go out and borrow additional money. So that helps. Secondly, a little known fact is that we have a 90/10 rule that these for-profit schools can only get up to 90 percent of their money from the government student-aid programs. The other 10 percent they have to get from the students or other sources.

So the student has to go out and take out a loan.

Or something. Well, there's a little quirk in the law that military benefits don't count on the 90 percent side.

So 100 percent can be paid for by the military benefits programs.

Absolutely. So a for-profit school, they want to go out and recruit military people because they can get the military people in, and it doesn't count on the 90 percent. So they could be getting 95, 96, 97 percent of their money from the government, yet still fall under the 90 percent rule.

The for-profits are more expensive. Their tuition is higher than the University of Maryland, for instance, or some of the other schools that have for a long time served veterans. So why would a veteran sign up with a for-profit if he can get a better deal with a nonprofit?

I don't know the answer to that question other than that the for-profits do a much better job of recruiting and advertising than the nonprofits do. Let's face it: The nonprofits don't make a profit, so they're not heavily into advertising and promoting.

Because they don't have the budget.

The nonprofits just simply don't have the budget for it. And the other thing that's happening now is that these for-profits are going after the spouses and children of our GIs. That's who they're targeting now.

But that is legal. That's part of the legislation that you passed.

As I say, it's legal. But are they really providing a good educational benefit to the spouses and the children? That's the real question. And our data shows that that's not happening; that, quite to the contrary, a lot of the spouses and children that are signing up are being taken advantage of. And they're spending their government money, taxpayer money. The hedge funds and the private equity firms are making a big profit, and yet the spouses and the children are not getting a good education.

The schools say that they're doing as good a job as anybody else and that they are serving the underserved.

Are they serving them in a manner where the underserved maybe gets a little few things, but they don't really get a good education?

What's the evidence that they are not giving vets a good education?

We know about the dropout rate. We looked at the number of students they recruit and what their growth is in the student population. But how many did they recruit to get that increase? For example, [one school], in one year they increased their enrollment by 27,000, but they enrolled 371,000 students to get that 27,000 growth.

What happened to the other 300-and-some-thousand students? Where did they go? They just sort of paid their money and disappeared.

So it's what you call "churn"?

It's what we call churning. They're churning students. It's a bad business model.

Here's what's wrong with this picture: A for-profit school makes the most profit by enrolling the poorest students. That's why they target the poorest students. Why? Because the poorest students get the most Pell Grants and the biggest student loans, and therefore that money goes to the for-profit schools; they keep that money as a profit. And quite frankly, they don't really have a stake in what happens to that student. That student drops out after a year, they keep the money, and the student's gone.

They would say the longer they keep a student enrolled, the more money they're going to make, so therefore it's in their interest to keep them there.

Well, either that or they churn the students and they make their money on new students coming in.

But to do that, they'd have to spend a lot of money on recruitment.

And they do spend a lot of money on recruitment and advertising.

They say, look, we're serving the underserved; we're serving a part of the population that traditional universities have turned their back on and that it's to be expected that among this cohort there's going to be a high level of dropouts, because you're dealing with people whose circumstances are such that they live more on the edge. What do you say to that?

I would say that if they really want to serve that population, maybe they should make a little less profit and put more of that money into supporting services for these poor students. We do that at other colleges. We do it at community colleges; we do it at our public universities.

There are many programs to help support students who come from those kind of poor backgrounds that don't have the kind of support mechanism to enable them to really get a good education. The for-profits provide very little if any support. They bring in these students; they promise them the sky. They promise them they're going to get great jobs and a good education, and then they're on their own.

You say support services. What should the VA do? What should the Department of Defense do?

First of all, the Department of Defense and the VA has got to start tracking that money and what happens to these students. And through our investigations, we're now asking the for-profit schools to give us a breakdown: How many of these new recruits that they're bringing in are military, and what's happening to them?

Are they cooperating?

We've started asking them for that data, and we'll see if they're going to cooperate. If not, we may have to take more stringent steps.

The VA says they've been overwhelmed with just getting this program up and running and getting the money out the door, and they say that down the line, they need to do a better job of informing students about what their choices might be. Is that acceptable?

That is not an acceptable answer. They need to do a better job of tracking this money and what's happening.

Look, in 20 for-profit schools that we tracked, the amount of military money in four years went from $66 million to $521 million. In four years! That's a 683 percent increase in four years.

Sounds like a good business to invest in.

That's why AMU -- the American Military University -- had been bought by these private equity firms. That's why hedge funds are getting into this business. Anytime you see hedge funds getting into education, you've got to ask, wait a minute, hedge funds are in there to make the biggest profit they can and in the shortest amount of time that they can. And so you've got to really start asking some questions: What is going on here?

As it was explained to us, the mechanism was that the VA relies on State Approving Agencies [SAAs] to certify whether these schools should be eligible for GI benefit money. How good a job are the State Approving Agencies doing, in your view?

We had some of these approving agencies before our committee, and quite frankly, they're not doing a very good job. In many cases, some of these agencies are being paid by the very schools that they're accrediting. So do they want to not accredit a school that's going to pay them?

We found a lot of abnormal behavior out there from these accrediting agencies that went out and gave accreditation to some of these for-profit schools. Through our investigation by the GAO [Government Accountability Office], they found a completely different picture than what the accrediting agency found.

So I think there's some real problems with the way accrediting agencies are established, who pays them. And if the schools they're accrediting are the ones that are paying them, are they really doing a good job of accrediting?

What we found is that in the military program, they just basically give the money to the student and say goodbye. They don't care where they go or what school they attend to. They do no accounting on that; they do no supervision of that; and they don't track it.

So you're a legislator. What are you guys going to do about it?

The reason we've had this investigation going on for about a year is to make sure we've got a clear picture of what was happening. There are other hearings that we'll be doing.

I hope sometime this year we will have a package of legislation that we'll be proposing that will hopefully start to change the picture on these for-profit schools.

We just can't continue to go down this path. Look at it this way: These for-profit schools right now are taking 25 percent of all of the federal student aid money -- 25 percent -- yet they're only covering 10 percent of the students.

And when it comes to vets, they're taking 36.5 percent.

They're taking 36 percent of all the money that comes to the military. That's exactly right. But what's happening to these people? Are they getting a good value for the money that they're spending at these for-profit schools? That's sort of the bottom line.

You've been here for a while in Congress, in the Senate, and you've seen a lot of lobbyists come and go. How do they match up, the for-profit school lobby, in terms of their power and capability?

The for-profit school lobby here in Washington is very powerful. And they're powerful on both sides of the aisle, I will add.

A lot of my friends who have been members of Congress in the past are lobbyists for the for-profit schools. The for-profit schools hire a lot of powerful lobbyists. …

But again, that's indicative as to how much profit there is in these schools. I'm not opposed to the profit motive, but how can you call yourself a for-profit school when 95 percent of your money comes from the taxpayers? Is that for-profit? They're just taking advantage of the legislation that we had passed to make these huge profits in these schools.

You have to look at a little bit of the history here. Most of these for-profit schools had their genesis back around World War II. They started out as technical schools [for] a young person who didn't want to go to a four-year college, wanted to be an auto mechanic or a diesel mechanic or an airplane mechanic, or some technical work. Or [for] young women who wanted to be stenographers or court reporters, they went to these schools. And these schools were basically for-profit schools, but they did a good job, because they were training a segment of the population for jobs that the four-year colleges were not doing.

But what happened is they then morphed. As legislation changed and as we got more money into student loans and student grants, people always know how to make a buck. So they morphed into these institutions like the University of Phoenix, in which you can take just about any course you want. And you wonder, does that really lead to a good job or not?

And as they morphed into these huge entities, hedge funds, private equity firms, the geniuses on Wall Street figured out how to make more money out of them. And I'd say probably in the last 20 years they have grown, and in the last several years they've grown exponentially.

Given the power of the lobby, given the amount of money that Wall Street has at stake here, are you going to be able to pass legislation in the current environment that really makes a difference?

Well, I'm hopeful that reason will prevail here and that members of Congress on both sides of the aisle will say this is not sustainable; this is not good. This is taxpayer money. Are these students getting a good value for that? And what about the recruiting techniques, where they go after the poorest students and yet these students don't get any support, and they churn these students every year?

And there's one other thing that we've got to come to grips with here. These poor students are borrowing money. These for-profit schools will go out and recruit them, and they'll say you don't have to do anything; we'll fill out all the paperwork; we'll submit all this, and we'll get you the loan; you won't have to do a thing. And so the student signs their name on the dotted line. They get the loans, and then the student drops out.

The for-profit school keeps the money; the student keeps the debt. And what a lot of these young people don't know is that debt is not dischargeable in bankruptcy; that debt is around their neck for the rest of their lives. They can't get another student loan. They won't be able to get a house or a car or anything else because they've got that debt hanging around their neck, but they have no way to pay for it. And that to me is one of the worst aspects of this.

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